There seems to be important developments taking place in the convergence of private equity with sustainability priorities among institutions. For one thing, US private equity giant KKR has made a US$3.2 billion investment for 25% of Enilive, the sustainable mobility and energy transition arm of Italian energy group Eni.
According to Alberto Signori, partner in KKR’s European Infrastructure team, who described Enilive as “a key player in advancing the energy transition”, the investment “aligns with our strategy to support transformative energy projects across Europe”.
This represents a big bet by one of the biggest private equity names on the whole sustainability thesis, in contrast to recent private equity bets on fossil fuels that tarnished the asset class’s sustainability profile.
Meanwhile Boston Consulting Group has released a report on how private equity firms can meet investor expectations, focusing specifically on expectations around sustainability. It’s based on a survey of 231 members of the ESG Data Convergence Initiative, comprising 170 general partners and 61 limited partners. The survey found that 59% of LPs would both refuse to commit to an allocation because of potential bad public relations around sustainability, and because the GPs showed little desire to improve on poor sustainability performance.
Almost 70% of LPs said that portfolio companies which effectively manage sustainability considerations will warrant a valuation premium compared to peers who do not. And 29% of LPs are focused on climate change and net zero as their key sustainability priority, with transparency and reporting as the second most important at 15%.
The GP respondents, meanwhile, show strong focus on sustainability for good business reasons. Some 66% said that a sustainability focus helps reduce risk in portfolio companies, 48% said it is a fundamental element of their firm’s purpose, and 47% said that it helps attract capital from LPs.
GPs also appear committed to securing external validation of their focus. For the 29% of respondents who have made public commitments to reduce portfolio emissions, 32% have already received external validation of those commitments, and another 24% are currently completing validation processes.
To be sure, a poll of EDCI members is to some extent already biased in favour of sustainability. Nonetheless, the drivers and considerations cited in the BCG report should operate industry-wide. And as KKR has shown, industry leaders appear to be voting on the issue with their feet - or rather, their dollars.